The primary legislation regulating the Indian insurance sector is the Insurance Act 1938 (the “Insurance Act”) and the Insurance Regulatory and Development Authority Act 1999 (the “IRDA Act”). Recently, the Ministry of Finance proposed significant amendments to the Insurance Act and the IRDA Act through the Insurance Laws (Amendment) Bill 2022, which – if brought into force in its current form – will result in various significant changes to registration requirements and operational matters.

The Marine Insurance Act 1963 has its basis in the UK Marine Insurance Act 1906. Although the Marine Insurance Act primarily regulates marine insurance, the Indian courts (in a manner akin to the courts in the UK) have extended some of the principles of the Marine Insurance Act to non-marine insurance contracts.

Indian courts are constitutionally mandated to follow the precedent system, which is based on the doctrine of stare decisis as far as questions of law are concerned. The lower courts are bound to follow the decisions of the courts above them in the hierarchy. Therefore, the decisions of the Supreme Court of India are binding on all lower courts. However, it is not uncommon to see conflicting decisions.

Insurance and reinsurance companies and insurance intermediaries in India are governed by the Insurance Regulatory and Development Authority of India (IRDAI). Insurance entities set up in the International Financial Services Centre (IFSC) in India are additionally governed by the International Financial Services Centres Authority (IFSCA).

Pursuant to the powers granted to the IRDAI under the IRDA Act, the IRDAI has issued various regulations governing the licensing and functioning of insurers, reinsurers and insurance intermediaries. The regulations issued by the IRDAI govern a wide range of aspects, including:

• registration of Indian insurance companies and foreign reinsurance branch (FRB) offices;
• registration of insurance intermediaries;
• registration of the IFSC Insurance Office (IIO);
• registration of the IFSC Insurance Intermediary Office;
• establishment and closure of liaison offices in India by an insurance company registered outside India;
• the assets and solvency margins required to be maintained by insurers;
• issuance of capital;
• manner of preparation of financial statements;
• commission/remuneration and expenses of management (EOM) limits;
• outsourcing arrangements; and
• corporate governance norms for companies operating in the insurance sector.

The regulations issued by the IRDAI govern all insurers, namely:

• life insurers;
• general insurers;
• standalone health insurers; and
• reinsurers.

In addition, the IRDAI regulations govern all insurance intermediaries, which are:

• insurance brokers;
• corporate agents;
• web aggregators;
• third-party administrators;
• surveyors and loss assessors; and
• insurance marketing firms.

Further, the Foreign Exchange Management (Insurance) Regulations 2015 (the “FEMA Insurance Regulations”) regulate the manner in which a person resident in India (ie, a person who has been residing in India for more than 182 days in the preceding financial year) can take or continue to hold a general insurance or a life insurance policy issued by an insurer outside India. The Reserve Bank of India (RBI) has also issued Master Direction – Insurance of 1 January 2016 (as amended), which – read with the FEMA Insurance Regulations – provides guidance on various issues, including issuing policies, collecting premiums and settling claims with regard to general, life and health insurance policies.

Under the Insurance Act, an Indian insurance company is permitted to carry on insurance business in India. An Indian insurance company is a public limited company formed under the Companies Act 2013, which exclusively carries on life insurance business, general insurance business, health insurance business or reinsurance business.

An entity that seeks to carry on insurance business is required to apply for a certificate of registration from the IRDAI in accordance with a three-stage process set out under the IRDAI (Registration of Indian Insurance Companies) Regulations 2022, as amended (the “Registration Regulations”). The Registration Regulations repeal the IRDA (Registration of Indian Insurance Companies) Regulations 2000. Some notable changes brought about by the Registration Regulations include that the investment in the insurance company could be made in the capacity of a private equity fund, investor, or promoter, subject to certain specific conditions.

A certificate of registration is required for each category of insurance business (ie, life, general, standalone health, and reinsurance). In addition, the Registration Regulations set out the essential requirements that an applicant applying for registration is required to fulfil, including (but not limited to):

• permissible foreign investment limits;
• minimum capitalisation requirements;
• minimum qualifications of the directors and principal officers;
• planned infrastructure; and
• general track record of conduct and performance of each of the Indian promoters and foreign investors in the business or profession they are engaged in.

The applicant must also provide adequate documentation in support of their application, as prescribed under the Registration Regulations.

Foreign Reinsurers

The Insurance Act permits the establishment of FRBs as well as the setting up of service companies under the Lloyd’s India framework. Foreign insurers may apply for registration of a foreign reinsurer branch in accordance with the IRDAI (Registration and Operations of Branch Offices of Foreign Reinsurers Other than Lloyd’s) Regulations 2015 (the “Branch Office Regulations”). Syndicates of Lloyd’s may participate under the Lloyd’s India framework (“Syndicates of Lloyd’s India”) through a service company set up in India in accordance with the IRDAI (Lloyd’s India) Regulations 2016. 

The Branch Office Regulations specify the eligibility criteria of a foreign reinsurer, such as:

• credit rating;
• infusion of minimum assigned capital into the foreign reinsurer branch;
• in-principle clearance from home-country regulator; and
• commitment to meeting all liabilities of the foreign reinsurer branch.

Further, foreign reinsurers can also be registered with the IRDAI as cross-border reinsurers (CBRs) in accordance with the IRDAI’s Guidelines on Issuance of File Reference Numbers (FRN) to Cross-Border Reinsurers of 3 January 2023 (the “CBR Guidelines”), which supersedes the IRDAI’s Guidelines on Cross Border Reinsurers of 22 January 2021. The CBR Guidelines categorise CBRs into two categories (“Eligible CBRs” and “Non-Eligible CBRs”) – based on the eligibility criteria stipulated at R4(1) of the IRDAI (Reinsurance) Regulations 2018 (the “Reinsurance Regulations”) – and allow for autorenewal of a CBR’s permission (by way of a filing reference number). 

A foreign reinsurer may also apply to the IFSCA in order to set up a branch within the IFSC and obtain registration as an IIO for carrying on reinsurance business. In order to set up an IIO, a foreign reinsurer is required to comply with the IFSCA (Registration of Insurance Business) Regulations 2021 (the “IIO Regulations”) and the IFSCA (Operation of International Financial Services Centres Insurance Office) Guidelines 2021 (the “IIO Guidelines”), which govern the registration requirements for an entity seeking to conduct the reinsurance business in the IFSC. The IFSCA (Management Control, Administrative Control and Market Conduct of Insurance Business Regulations 2023 of 26 April 2023 provide guidance in relation to the managerial and administrative functions of IIOs.

Premiums received on account of insurance and reinsurance business attract applicable taxes, including goods and services tax. Income tax laws provide deductions to the policyholder on life and health insurance premiums paid.

Overseas, non-admitted insurers cannot write direct insurance business in India. As a general rule, the purchasing of insurance from overseas insurers by Indian residents is prohibited in India, unless the purchase falls within the general or specific approval of the RBI.

Non-admitted insurers who have registered with the IRDAI as CBRs can write reinsurance of Indian risks from overseas in accordance with the IRDAI’s regulations on the reinsurance of life and general insurance business. In addition to this, the IRDAI issued Guidelines on the Establishment and Closure of Liaison Office in India by an Insurance Company Registered Outside India on 17 October 2022, which lays down the framework for overseas insurers to open liaison offices in India.

Indian residents are permitted to purchase health insurance policies from overseas insurers, provided the aggregate remittance (including premium) does not exceed the limits prescribed by the RBI under the Liberalised Remittance Scheme. Indian residents are also permitted to purchase insurance policies in respect of any property in India or any ship, vessel or aircraft registered in India from an insurer whose principal place of business is outside India –albeit only with the IRDAI’s prior permission.

The overarching regulatory framework for the reinsurance of risks is laid down by the Reinsurance Regulations. The guiding principle is maximising retention within India, so each insurer must maintain the maximum possible retention commensurate with its financial strength and volume of business and ensure that it is not merely “fronting” for a reinsurer or retrocessionaire. In this context, fronting is defined as a process of transferring risk in which an Indian insurer cedes or retrocedes most of or all of the assumed risk to a reinsurer or retrocessionaire.

Recently, the IRDAI has issued the IRDAI (Reinsurance) (Amendment) Regulations 2023, which has modified the existing Reinsurance Regulations in an attempt to “harmonise the provisions of various regulations applicable to Indian Insurers and Indian Reinsurers (including FRBs and IIOs), encourage more reinsurers to set up business in India and enhance ease of doing business”. In this respect, the amendment introduced various changes in relation to reinsurance placements by Indian cedants – for example, streamlining the Order of Preference from six to four levels and simplifying the various filing requirements for cedants.

Acquiring Stakes

The insurance sector has, in recent years, been abuzz with the news of new players looking to acquire stakes in insurance companies and insurance intermediaries. While such restructuring is a complicated process in itself, the approval requirements stipulated by the IRDAI additionally extend the process. Sections 35, 36 and 37 of the Insurance Act prescribe the procedure for obtaining the approval of the IRDAI for amalgamation and transfer of insurance business of insurers. The IRDAI has also notified scheme rules that prescribe the procedure insurers must comply with for the purpose of amalgamations and transfer of business.

The parties are required to prepare a scheme that sets out the agreement under which the transfer or amalgamation is proposed to be effected and which contains such further provisions as may be necessary for giving effect to the scheme. Two months prior to making an application to the IRDAI for the approval of this scheme, a notice of intention to make such application must be sent to the IRDAI, along with a statement of the nature of the transaction and the reasons therefor, as well as four certified copies of the following documents:

• a draft of the agreement or deed under which it is proposed to effect the amalgamation or transfer;
• balance sheets in respect of the insurance business of each of the insurers concerned in such amalgamation or transfer;
• a report on the proposed amalgamation or transfer, prepared by an independent actuary who has never been professionally connected with any of the parties concerned in the amalgamation or transfer in the preceding five years;
• actuarial reports and abstracts in respect of the insurance business of each of the insurers; and
• any other reports on which the scheme of amalgamation or transfer was founded.

The statutory and regulatory framework lays down the manner in which approval of the IRDAI may be sought, the documents required, as well as the pre- and post-approval actions that must be complied with by the parties.

Amalgamations

In addition to the foregoing, pursuant to the powers conferred under Section 37A of the Insurance Act, the IRDAI also has the power to prepare a scheme for the amalgamation of an insurer with another insurer, where the IRDAI is satisfied that such an amalgamation is necessary in the public interest, in the interest of policyholders, in order to secure the proper management of an insurer, or in the interest of the insurance business of the country as a whole.

Transferring the amalgamation of business of an insurer without the approval of the IRDAI is also grounds for suspension of the insurer’s certificate as issued by the IRDAI. Through a circular titled Transfer of Shares of the Insurance Companies of 23 July 2020, the IRDAI clarified that provisions concerning transfer of shares will apply mutatis mutandis to the creation of a pledge or any other kind of encumbrance on shares of an insurer by its promoters.

Recently, the IRDAI has granted certificates of registration to Acko Life Insurance Limited and Credit Access Life Insurance Limited to commence life insurance business. Also, on 2 June 2023, the IRDAI passed an order to transfer the life insurance business of Sahara India Life Insurance Company Limited to SBI Life Insurance Company Limited.

The IRDAI has issued regulations setting out the licensing or registration requirements and procedures for all recognised intermediaries, including insurance agents, corporate agents, brokers, surveyors, third-party administrators, web aggregators, insurance repositories and insurance marketing firms. The IRDAI (Insurance Intermediaries) (Amendment) Regulations 2022 amend the maximum number of arrangements that a corporate agent is permitted to enter into with life, general and health insurers under the IRDAI (Registration of Corporate Agents) Regulations 2015, as well as amend the maximum limit of tie-ups permitted to insurance marketing firms with life, general and health insurers and increase their area of operation under the IRDAI (Registration of Insurance Marketing Firms) Regulations 2015.

Individual Insurance Agents

An application for a licence to operate as an individual insurance agent is required to comply with the conditions provided under the Insurance Act and regulations issued by the IRDAI in this regard. Individual agents are required to have completed practical training and possess the requisite knowledge for soliciting insurance business before applying for a licence. Individual agents are expected to only engage in insurance distribution services and are permitted to solicit business for only one insurance company engaged in each class of insurance business.

Corporate Agents

Entities eligible to operate as corporate agents include firms, banks, non-banking financial companies, co-operative societies, NGOs and companies. Corporate agents are permitted to engage in any business as their main business, apart from insurance distribution. However, if a corporate agent has a main business other than insurance distribution, the corporate agent is not permitted to make the sale of its products contingent on the sale of an insurance product (or vice versa). Corporate agents are allowed to have arrangements with a maximum of nine insurers in each class of insurance business.

Insurance Brokers

Insurance brokers are required to exclusively carry out the distribution of insurance products. Any company, limited liability partnership or co-operative society may apply to the IRDAI for grant of an insurance broker certificate of registration. Applicants can register as direct brokers, reinsurance brokers, or composite brokers (involved in both direct and reinsurance broking). The minimum capital is INR7.5 million for direct brokers, INR40 million for reinsurance brokers and INR50 million for composite brokers. All insurance brokers are required to be part of the Insurance Brokers Association of India.

Insurance Marketing Firms

Entities that are licensed as insurance marketing firms are permitted to distribute insurance products along with mutual funds, pension products and certain other financial products, provided that permissions are in place to distribute those financial products from the respective regulator. Insurance marketing firms are required to have a minimum net worth of INR1 million. They are also permitted to undertake survey functions through licensed surveyors on their rolls, policy servicing activities, and other activities that are permitted to be outsourced by insurers under the applicable regulatory framework. Insurance marketing firms are allowed to have tie-ups with a maximum of six insurers in each class of insurance business.

Web Aggregators

An entity such as a company or a limited liability partnership that is registered as a web aggregator is permitted to display on its website information on insurance products of those insurers with whom the web aggregator has entered into an agreement. The web aggregator is also permitted to display product comparisons on its website, carry out activities for lead generation and share leads with insurers. A web aggregator is required to have a minimum capital of INR2.5 million.

Point-of-Sales Persons

The IRDAI has issued guidance for the appointment of a point-of-sales person (POSP) for the solicitation and servicing of point-of-sale products on behalf of life, general and health insurers. A POSP may be appointed by either an insurer or an insurance intermediary. The entity engaging the POSP is required to train the POSP and conduct an in-house examination of such POSP, in accordance with the norms issued by the IRDAI.

Motor Insurance Service Providers

The IRDAI issued Guidelines on Motor Insurance Service Providers 2017 (the “MISP Guidelines”) to regulate the role of automobile dealers in the distribution and servicing of motor insurance products. A duly registered motor insurance service provider (MISP) is permitted to solicit, procure and service motor insurance policies for insurers or insurance intermediaries (as the case may be) in accordance with the provisions of the MISP Guidelines.

All insurance policies in India contain insuring clauses, general conditions, exclusions and definition sections. The insuring clause, exclusion and definition wording depends on the type of policy being issued and the type of cover requested – although the conditions are fairly standard in that they will include notification, co-operation, consent, changes in material risk, and other insurance clauses. These clauses can be deleted or modified by way of endorsements.

The wording of insurance contracts is highly regulated in India. In relation to various forms of general insurance, it is noted that the erstwhile Tariff Advisory Committee (TAC) – a statutory body that was established under the Insurance Act – issued a standard form of policy terms and conditions relating to fire, marine (hull), motoring, engineering and industrial risks and workmen compensation, which cannot be deviated from by insurers and to date are still required to be followed by most businesses. However, the tariff general regulations, terms, conditions, clauses, warranties, policy, add-ons, endorsement wording and proposal form applicable to specific coverage under fire and allied perils insurance business governed by the erstwhile All India Fire Tariff 2001 have been de-notified with effect from 1 April 2021.

In addition, for health insurance policies, the IRDAI has specified a standard set of definitions, general conditions, exclusions, standard nomenclature for critical illnesses, and a standard list of generally excluded expenses. The IRDAI has also specified a number of regulatory requirements and conditions vis-à-vis coverage and presentation of health insurance policies, making these policies highly regulated.

Policy Terms

There are also extraneous rules that have an impact on policy terms – for example, the Insurance Act gives the policyholder a right to override contrary policy terms in favour of Indian law. The IRDAI (Protection of Policyholders’ Interests Regulations) 2017 (the “Policyholders Regulations”) prescribe certain matters to be mandatorily incorporated in life insurance, general insurance and health insurance policies. Some of the key requirements are as follows:

• the name and unique identification number (UIN) allotted by the IRDAI for the product, its terms and conditions, and details of the sales person;
• benefits payable and the contingencies upon which these are payable, as well as the other terms and conditions of the insurance contract, including any riders/endorsements;
• details of the nominee(s);
• the premiums payable, frequency of payment, grace period allowed, and implications of discontinuing the payment of an instalment of the premium;
• any special clauses, exclusions or conditions imposed on the policy;
• the address and email of the insurer to which all communications in respect of the policy must be sent;
• details of the insurer’s internal grievance redressal mechanism, along with the right of the insured to approach the insurance ombudsman that has requisite territorial jurisdiction; and
• the list of documents that are normally required to be submitted in the event of a claim.

Where exclusions are to be stipulated in the policy, the Policyholders Regulations require that – wherever possible – insurers must endeavour to classify the exclusions into the following:

• standard exclusions applicable to all policies;
• policy-specific exclusions that cannot be waived; and
• policy-specific exclusions that can be waived on payment of an additional premium.

Similarly, to provide the policyholder with clarity and understanding of the conditions, insurers are also required to try to broadly categorise policy conditions into the following:

• conditions precedent to the contract;
• conditions applicable during the contract;
• conditions when a claim arises; and
• conditions for the renewal of the contract.

Although a broad product classification based on the target customer base exists under general insurance and health insurance policies in India, the above-mentioned requirements apply uniformly to consumer contracts as well as commercial contracts.

In 2020–21, the IRDAI also standardised various general, health, and life insurance policy wordings that must be followed by Insurance companies.

Good Faith and Other Obligations

It is a fundamental principle of insurance law that utmost good faith (uberrimae fide) must be observed by the contracting parties. The duty of utmost good faith places an obligation on the insured to voluntarily disclose all material facts that are relevant to the risk being insured. If there has been a misrepresentation or non-disclosure of a material fact, an insurer can avoid the policy from the beginning. Even though a policy may not expressly say so, all insurance policies are based on this principle.

Further, the Indian Marine Insurance Act 1963 and the Policyholders Regulations mandate that an insured is under an obligation to disclose all material information sought by the insurer in the proposal before the inception of the policy. An insurer is therefore entitled to receive full and fair disclosure of the material information that would influence the judgement of the insurer in determining whether to accept or reject the risk. The Supreme Court has stated this is to be done through the proposal form.

The Policyholders Regulations also impose an obligation on the insured to disclose all material information. This forbids the insured from concealing what they privately know, with a view to drawing the insurer into a bargain based on their ignorance of that fact. The insured’s duty to disclose is not confined to the facts that are within its knowledge but, rather, extends to all material information that the insured ought to have known. The duty of good faith is of a continuing nature and applies to both the insured and the insurer.

Recently, the Supreme Court of India reiterated the law that the insured cannot make a profit. Once the insured has been paid by one insurer, it cannot claim for the same loss from another insurer.

An insurer is entitled to receive fair presentation of the risk. As mentioned in 6.1 Obligations of the Insured and Insurer, if there is a misrepresentation or non-disclosure of a material fact, the insurer has the right to void the policy ab initio. Unless the misrepresentation or non-disclosure was fraudulent, the premium must be returned to the policyholder. In the case of life insurance policies, the policy cannot be called into question on any grounds (including fraud) after more than three years from the date of the issuance or the revival of the policy.

An insurance intermediary involved in the negotiation of a contract is required to take the needs of a prospect into consideration when recommending insurance to a prospect. Intermediaries are expected to act in the interest of policyholders.

Insurance is a contract of indemnity. In addition to the requirements of a valid contract as per the Indian Contract Act 1872, the person entering into the contract of insurance must also have insurable interest in the subject matter of the contract. The element of insurable interest must be present in all types of insurance – failing which, it would simply be a wagering contract that would be void.

An insurance contract is required to contain certain mandatory clauses, as enumerated in 6.1 Obligations of the Insured and Insurer.

The present regulatory framework does not set out express norms on the payment of claims to unnamed insureds. Typically, therefore, coverage of such parties largely depends on the terms and conditions of the underlying insurance policy.

The Reinsurance Regulations issued by the IRDAI define a contract of reinsurance as a legally binding document on all the parties that provides a complete, accurate and definitive record of all the terms and conditions and other provisions of the reinsurance contract. Reinsurance arrangements do not need to be pre-approved by the IRDAI.

ART was expressly recognised in India by way of the Reinsurance Regulations in 2018. The Reinsurance Regulations stipulate that an Indian insurer intending to adopt ART solutions must submit such proposals to the IRDAI, which may – after necessary examination and upon being satisfied with the type of ART solution – allow the ART proposal on a case-by-case basis. The Reinsurance Regulations do not expressly set out the benchmarks based on which the IRDAI will examine these proposals.

Per the directions of the IRDAI issued in 2004, any ART arrangement must be accounted for based on the principle of “substance over form”. If the agreement is in the form of reinsurance coupled with a financing arrangement, and the components are capable of separation, each element should be accounted for as per the Generally Accepted Accounting Principles (GAAP).

However, in cases where the aforementioned components are not separable, the entire arrangement should be treated as a financial transaction and should be accounted for accordingly. All non-life insurers are required to account for the ART arrangements by looking at the “substance over form” and account for this as per the GAAP.

When interpreting insurance contracts, Indian courts have held that – when construing the terms of an insurance contract – the words used therein must be given paramount importance and it is not permitted for the court to add, delete or substitute any words. It has also been observed that the terms of an insurance policy have to be strictly construed in order to determine the extent of the liability of the insurer – given that, upon issuance of an insurance policy, the insurer undertakes to indemnify the loss suffered by the insured on account of risks covered by the policy.

The general rule is that, where the contract is expressed in writing, oral evidence cannot be submitted to explain or vary the terms of a written contract. Although a contract must always be construed according to the intention of the parties, that intention can only be ascertained from the instrument itself. All other evidence of intention is excluded because, when an agreement is reduced to writing, the parties thereto are bound by the terms and conditions of that agreement.

In the event that any policy provision is ambiguous or there is uncertainty as to the meaning or intention of the provision, then this must be construed contra proferentem – that is, against the maker of the document.

Warranties are the clauses that form the basis of the contract of insurance. Usually, clauses that are meant to operate as warranties are expressly stated to be so in the insurance policies. All warranties under an insurance policy must be strictly complied with, whether material to the risk or not. If a warranty is breached, an insurer is discharged from all liability under the policy. The Supreme Court of India has recently held that mere knowledge on the part of the insurer that there was breach of warranty by an insured would not amount to a waiver in the absence of an express representation by the insured.

Usually, an insurance policy will expressly state the provisions that are conditions precedent to liability. If any condition precedent has been breached, the insurer has the right to repudiate the claim. However, where it is not expressly stated, the Indian courts will make efforts to decide whether a particular clause is merely a condition or a condition precedent to the insurer’s liability.

Insurance policies are structured to incorporate comprehensive mechanisms for dispute resolution both in respect of coverage and quantum disputes. Insurance policies typically include details of the insurance ombudsman, who is appointed to address complaints by the insured in relation to (inter alia) the settlement of claims.

The IRDAI requires insurers to formulate a grievance redressal policy and file it with the IRDAI. An insurer is also required to provide the details of the grievance redressal mechanism within the policy. Policyholders who have complaints against insurers must first approach the grievance or customer complaints department of the insurer.

Insurers are required to form a part of the Integrated Grievance Management System (IGMS) put in place by the IRDAI to facilitate the registering/tracking of complaints online by the policyholders. In cases of delay or no response relating to policies and claims, the IRDAI can take up matters with the insurers to ensure speedy resolution. Although policyholders, claimants or the insured can approach the IRDAI for assistance, advocates, agents and other third parties are not allowed to approach the IRDAI.

Insureds

Insureds have no exclusive judicial venues available to them for the resolution of insurance or reinsurance disputes. Insureds are, however, treated in law as consumers of insurance services and can therefore approach the consumer courts for relief. Insureds can also approach commercial courts or civil courts, depending upon the value of the claim, or invoke arbitration for recovering monies under an insurance policy – provided the insurance policy does not contain an arbitration clause. However, the right to approach a consumer forum exists even where there is an arbitration clause.

The consumer courts follow a three-tier hierarchy, which – in ascending order – is as follows:

• the District Consumer Disputes Redressal Commission (the “District Commission”);
• the State Consumer Disputes Redressal Commission (the “State Commission”); and
• the National Consumer Dispute Redressal Commission (the “National Commission”).

District Commissions have the jurisdiction to deal with complaints that arise from a contract for services or goods and which involve allegations of “deficiency in service”, where the consideration does not exceed INR5 million. For the State Commission, the threshold is between INR5 million and INR20 million, whereas the National Commission can take up original complaints where the consideration is more than INR20 million. The District Commission and the State Commission must also possess the necessary territorial jurisdiction. Appeals against the decisions of the State Commission are heard by the National Commission. An appeal from the decision of the National Commission lies before the Supreme Court of India. The consumer courts follow a summary procedure to ensure quick adjudication of disputes.

A person availing a service for commercial purposes is excluded from the definition of a “consumer” under Indian law. Whether an insured comes within the scope of “consumer” was clarified by the Supreme Court in National Insurance Co Ltd v Harsolia Motors and Ors (2023) 8 SCC 362. The Supreme Court held that the relevant consideration in this regard is whether the items sold or services offered are directly related to the activity that generates profit. It was observed that availing an insurance policy is an act of indemnifying a risk of loss/damages and there is, therefore, no element of profit generation.

Insureds can also approach the insurance ombudsman for disputes relating to deficiency of performance arising out of the policy, or for any other violation of the Insurance Act against the insurer, its agents and intermediaries – provided their claim value is under INR3 million.

Insureds can also file a commercial suit against an insurer for enforcing their claims. The Commercial Courts Act 2015 recognises insurance disputes over a value of approximately INR300,000 as commercial disputes and provides for a fast-track procedure for adjudicating disputes.

Coverage, Limitation Periods and Beneficiaries

Disputes pertaining to coverage are rarely arbitrated. Insurance policies generally provide for arbitration in the case of quantum disputes only and coverage disputes are usually excluded. The exception to such exclusions may, in certain cases, be liability policies.

The limitation period for making an insurance claim before a consumer court is two years. For commercial suits and arbitration, the limitation period is three years from the date of rejection of the claim by an insurer or from the date on which the claim arose, as may be applicable.

Unnamed beneficiaries or third parties cannot enforce rights under a general insurance contract. Typically, general insurance contracts have clauses that prohibit the assignment of rights under an insurance contract to a third party without the consent of the insurer.

Indian courts are increasingly enforcing the choice of law and jurisdiction made by parties in a contract. Party autonomy is respected except where public interest/policy issues are involved. Where an express choice of law and jurisdiction has not been specified in a contract, Indian courts will usually apply conflict-of-law principles to determine the forum and law that are closest to the dispute. Even in the case of arbitration, a similar approach has been followed. India is a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the “New York Convention”) and the Geneva Convention for enforcement of foreign awards.

An insured may, depending on the facts of the case, approach a civil/commercial court or a consumer court. Proceedings before the consumer courts are summary in nature. This means that typically no cross-examination of witnesses takes place and the dispute is adjudicated based on the documents filed and arguments led by the parties.

The broad ascending hierarchy of the civil courts is similar to the consumer courts. It comprises approximately 600 district courts, 25 High Courts, and the Supreme Court (the highest court in India). Of the 25 High Courts, five High Courts – namely, the High Courts of Calcutta, Madras, Bombay, Delhi and Himachal Pradesh – have original jurisdiction, which means that matters above particular pecuniary thresholds will be heard by the High Court in the first instance. For some of these five High Courts, there are territorial limits within which the cause of action must arise for it to be heard by the High Court at the first instance.

Trials before the civil courts follow the usual process of pleadings, evidence, and arguments as in other common-law jurisdictions. As such, they can take an unusually long time to conclude.

Special Benches

The Commercial Courts Act 2015 carves out special benches in all existing civil courts to adjudicate commercial matters exclusively. Since the Commercial Courts Act 2015 recognised insurance disputes as commercial disputes, all insurance disputes valued above INR300,000 are now required to be filed before a commercial court with appropriate territorial jurisdiction at the district level and are no longer filed before civil courts. There are fixed timelines that all commercial courts need to follow and the legislation is meant to speed up the adjudication process. The statute also provides for compulsory mediation for parties before filing a commercial suit, except where a party seeks urgent interim relief.

Appeals against the orders of the commercial courts of first instance lie before the commercial appellate court or the commercial appellate division of the concerned High Court (as the case may be). The Commercial Courts Act 2015 does not allow for any further appeals from the orders of either the commercial appellate court or the commercial appellate division of a High Court.

Indian litigation can often be time-consuming and potentially expensive. The number of reported pending cases is close to 50 million. Attempts to clear the backlog have not yielded the desired results, even though the inception of commercial courts has somewhat expedited the trial process. Overall, no consistent improvement has been noticed and the process is still slow and potentially expensive. The pendency statistics may, however, not provide an accurate picture – given that some of these matters may not even be in a position to be heard on account of various non-compliance by the parties.

The Indian Code of Civil Procedure 1908 (CPC) lays down the procedure for enforcement of Indian and foreign judgments. The basic principle that is followed when enforcing a foreign judgment or decree in India is to examine whether the foreign judgment or decree is a conclusive one in terms of Section 13 of the CPC, based on the merits of the case and passed by a superior court of competent jurisdiction. Furthermore, a foreign judgment can be enforced in India by filing an execution petition under Section 44-A of the CPC, if the judgment is passed by a court in a reciprocating territory. Such an execution petition under Section 44-A of the CPC can be filed before an appropriate district court (as defined under the CPC); this also includes High Courts with original civil jurisdiction.

In the case of a judgment passed by a court in a non-reciprocating territory, a suit may be filed upon the foreign judgment or decree. In such situations, the foreign judgment is considered of evidentiary value only. The process of enforcement of judgments can also prove to be slow in such cases.

Domestic Arbitration

Typically, Indian courts strictly enforce arbitration clauses. This position holds true for insurance and reinsurance contracts as well.

The courts generally refer a dispute to arbitration after checking for the existence of an arbitration agreement and the arbitrability of the dispute (ergo omens effects), and let the arbitral tribunal decide jurisdictional issues such as novation, settlement and limitation. However, in extremely rare cases where the dispute is ex facie time-barred or there are no subsisting disputes, the court has the discretion to refuse a reference.

The courts have recognised a few additional, but not exhaustive, categories of subject matter that ought not to be arbitrated – for example, matrimonial disputes, guardianship disputes, insolvency, disputes under the Trusts Act 1882, winding-up and testamentary disputes, and disputes relating to criminal offences. Additionally, the courts have held that a party who has approached a consumer commission cannot be forced to arbitrate the dispute (where such an agreement exists), as the Consumer Protection Act is a beneficial legislation and provides the consumer with an independent right of action.

An arbitration agreement, as per the Arbitration and Conciliation Act 1996 (the “Arbitration Act”), must be in writing and signed by the parties. The agreement should reflect the intention of the parties to submit their dispute(s) to arbitration. The Supreme Court has recently clarified that the mere use of the words “arbitration” or “arbitrator” in a clause in the contract cannot constitute a binding arbitration agreement between the parties, especially if it requires further or fresh consent from the parties. The arbitral tribunal to be constituted should be empowered to adjudicate the dispute(s) in an impartial manner. The parties should have also agreed that the decisions of the arbitral tribunal shall be binding on them.

The IRDAI issued a circular dated 27 October 2023 (“the Circular”) directing that all insurance policies issued under the commercial lines of business must have a mandatory arbitration clause, which stipulates that “the parties to the contract may mutually agree and enter into a separate arbitration agreement to settle any and all disputes in relation to this policy”. If parties mutually agree on an arbitration agreement, then the arbitration proceedings will be conducted as per the provisions of the Arbitration Act. The Circular has further deleted arbitration clauses from all polices under the retail lines of business prospectively. For the existing retail policies, the existing arbitration clause shall remain valid until the term of the policy expires, unless a policyholder specifically requests the insurer to replace it with the clause as mandated by the IRDAI. This also applies to all existing policies issued under the commercial lines of business. 

Generally, there is no prescribed form required for the purpose of an arbitration agreement. Although it is advisable to have an arbitration clause in the contract itself, it may not be mandatory. An arbitration agreement may also come into existence if it is contained in a subsequent exchange of letters, telex, telegrams or other means of telecommunications (including by electronic means) that provide a record of the intent to arbitrate.

The reference in a contract to another document that contains an arbitration clause would have the effect of incorporation if the contract is in writing and the reference is such that it captures the intention of incorporating the arbitration clause as part of the contract.

Recently, a seven-judge bench of the Supreme Court of India – in a curative petition titled In Re: Interplay Between Arbitration Agreements Under the Arbitration and Conciliation Act 1996 and the Indian Stamp Act 1899 – has held that unstamped or inadequately stamped arbitration agreements are inadmissible as evidence but not void. The Supreme Court held that the non-payment of stamp duty is a curable defect and any objection in relation to the stamping of the agreement falls within the ambit of the arbitral tribunal.

Foreign Arbitration

Even for foreign-seated arbitrations, the position remains broadly the same. Courts are typically inclined to refer disputes with an arbitration clause to arbitration.

Section 45 of the Arbitration Act requires an Indian court seised of any dispute to refer the parties to arbitration at the request of any one of the parties “unless it prima facie finds that said agreement is null and void, inoperative and incapable of being performed”.

The enforcement of domestic awards is governed by Part I of the Arbitration Act, whereas enforcement of foreign arbitration awards rendered in a recognised jurisdiction is governed by Part II of the Arbitration Act. Both domestic and foreign awards are enforced as a decree of the civil court.

A domestic award may be enforced only after the expiry of three months from the date on which the arbitral award was received. Three months is significant here as this is the time period within which a party has a right to challenge the award. After three months, the decree holder can initiate proceedings to enforce the award, and such proceedings are to continue unless the court deciding the challenge to the award has stayed the enforcement of the award in question on such terms as reasoned by the court. The condition for staying the enforcement of an award is generally the deposit of 100% of the awarded sums with the court.

The Arbitration Act was amended in 2021, whereby a court can grant an unconditional stay of enforcement if it prima facie finds that the award was obtained by fraud or corruption.

Conventions

India is a party to the New York Convention and the Geneva Convention; therefore, if the seat of arbitration is a country that is signatory to the New York Convention or the Geneva Convention dealing with recognition and enforcement of foreign awards, Indian courts would be in a position to enforce convention awards.

The party applying for enforcement of a foreign award is required to produce the following, as evidence:

• the original award or a duly authenticated copy of the award;
• the original arbitration agreement or a duly certified copy thereof; and
• such other evidence necessary to prove that it is a foreign award.

The grounds for refusing to enforce a foreign award in India are the same as those laid down in the New York Convention. These include:

• incapacity of parties or invalidity of the arbitration agreement;
• violation of principles of natural justice;
• the award being beyond the scope of the arbitration agreement;
• the composition of the tribunal not being in accordance with the agreement between the parties or the law of the country in which the arbitration took place;
• the award having not yet become binding between the parties or having been set aside or suspended at the seat of the arbitration;
• the subject matter of the arbitration not being arbitrable; and
• the award being contrary to public policy.

In the context of a foreign arbitration, the scope of public policy has been watered down to reduce the scope of court intervention.

Where a court is of the view that there are elements of a settlement that may be acceptable to the parties before it, it may formulate the possible terms of settlement, take the view of the parties, and refer the parties to:

• arbitration;
• conciliation;
• judicial settlement, including settlement through Lok Adalat; or
• mediation.

This power is derived from Section 89 of the CPC.

Such reference will require the consent/agreement of the parties where such consent/agreement is otherwise required under law – for instance, in the case of arbitration.

Mediation proceedings and settlement discussions are typically confidential. However, in certain circumstances, the mediator may be required to file a report before the court if so directed.

The Consumer Protection Act 2019 gives the court the discretion to refer the dispute to mediation with the consent of the parties if there are elements of the settlement that may be acceptable to the parties (except in matters relating to criminal and non-compoundable offences, fraud, medical negligence, etc). Following this, the government has also issued the Consumer Protection Mediation Rules 2020.

In practice, courts in India are now progressively encouraging parties to explore the possibilities of an out-of-court settlement, with a view to ending litigation between them. The courts usually have in-house mediation centres where experienced senior lawyers are appointed to act as mediators to try and resolve long-pending disputes.

Pre-institution Mediation

Section 12A of the Commercial Courts Act 2015 requires a plaintiff (to a suit) to mandatorily exhaust the remedy of “pre-institution mediation” before it can institute the suit. The Supreme Court has, in the case of Patil Automation (P) Ltd v Rakheja Engineers (P) Ltd (2022) 10 SCC 1, clarified that such pre-institution mediation is mandatory. This otherwise mandatory requirement need not be exhausted in the event that urgent interim measures are sought by the plaintiff.

The Policyholders Regulations prescribe the claims procedure that must be followed by insurers to ensure expeditious processing of claims. These regulations work towards ensuring that insurers settle claims on time. Insurers are required to pay interest at the rate of 2% above the prevalent bank rate in cases where there is delayed payment of the claim amount. However, the Supreme Court of India recently held in an arbitral award that the applicability of this rate is not a mandatory rule and that an arbitral tribunal has a discretion to determine the rate of post-award interest as it deems fit.

There is statutory and judicial recognition to the right of subrogation. For statutes, the Marine Insurance Act 1963 – specifically, Section 79 – provides for the insurer’s right to subrogation. Equally, Indian courts have recognised subrogation as an equitable corollary of the principle of indemnity – under which, the rights and remedies of the insured against the wrongdoer are transferred to and vested in the insurer.

No separate contractual clause is required to trigger this; however, in practice, policies do also contain subrogation clauses and insurers will frequently obtain “subrogation letters” and an “assignment” of the third-party claim from the insured. The Policyholders Regulations also obligate the insured to assist its insurer in recovery proceedings, if the insurer so requires.

Applications, AI, telematics and the internet of things (IoT) are examples of insurtech that are being utilised by insurers in India to transform the way insurers do business in India. Some ways in which insurtech is used are detailed here.

Websites and Apps

Indian insurers and intermediaries are partnering with tech companies to develop websites and mobile applications to facilitate the sale and servicing of insurance policies online. Insurers are also collaborating with various tech companies to digitise customer verification, underwriting, premium payment and claims-processing functions, as well as to automate the policy-issuance and claims-settlement processes.

Health Insurance

Health insurers are collaborating with fitness technology firms to track users’ behaviours and offer insurance discounts to those who have a healthier lifestyle. General insurers are collaborating with tech companies to explore IoT solutions to track, inter alia, cargo, theft, hijack attempts, and wastage.

Regulatory Sandbox

The IRDAI (Regulatory Sandbox) Regulations 2019, which aim to provide a testing ground for new business models to innovate in various areas. An application under the regulatory sandbox framework may be filed by any Insurance Company, insurance intermediary or any person (other than an individual) with minimum net worth specified under the Regulations. The IRDAI, by way of its press release of 14 January 2020, has approved four proposals under the regulatory sandbox for wearable devices (eg, wearable fitness trackers and comprehensive wellness programmes with wearable devices).

The IRDAI has issued various norms to address technological advancements and to regulate insurtech developments. The key regulatory changes are summarised as follows.

• With the significant increase in e-commerce transactions in recent years, the IRDAI has recognised the sale and servicing of insurance products online as well as the issuance of e-insurance policies. The IRDAI’sGuidelines on Insurance e-Commerce of 9 March 2017 lays down provisions for setting up insurance self-network platforms by insurers and insurance intermediaries in order to undertake the sale and servicing of insurance activities in India.
• The IRDAI’s Information and Cybersecurity Guidelines 2023 of 24 April 2023 sets out certain norms in relation to the collection of data and the usage of policyholders’ data both by the insurers and insurance intermediaries involved, as well as any third-party service providers engaged by them.
• The IRDAI’sMaster Guidelines on Anti-Money Laundering/Counter-Financing of Terrorism (AML/CFT) 2022 provides for a Video-Based Identification Process (VBIP) as one of the methods for insurers to perform mandatory KYC processes of their customers.
• The IRDAI has also issued its circular of 11 February 2021 on Product Structure for Insurance of Remotely Piloted Aircraft System (RAPS)/Drones, which provides model policy wordings. General insurers have the flexibility to design and develop their own product, bearing in mind the minimum coverage specified in the guidelines.
• The IRDAI issued an exposure draft of Issuance of e-Policies Regulations 2022 on 29 September 2022, wherein the IRDAI proposed a mandatory electronic insurance account (consisting of all the policies of the policyholder) and that – subject to prescribed exemptions – every insurer would be required to issue policies in electronic form.
• The IRDAI issued its circular of 14 November 2022 on Participation in Account Aggregator Framework to provide guidance on the participation of Indian insurance companies and insurance repositories (ie, NSDL, CDSL, Karvy and CAMS) in the RBI’s account aggregator framework. In addition, the IRDAI also issued a circular on Participation in Account Aggregator (AA) Framework as a Financial Information User on 3 November 2023, which sets out certain compliances that must be complied with by entities that are registered with the IRDAI.
• The IRDAI has set a limit on the maximum expenses that are permitted to be incurred by an Indian insurance company and set out an additional limit on expenses that are permitted for insurtech.
• The IRDAI conducts “open houses” (on a monthly basis) in order for insurtech/fintech entities to invite solutions/ideas for various insurance-related activities, which would help insurance companies provide better services to policyholders.

There has been a growing number of cyber-insurance covers being issued and claims being made under them. This has also led to an increased requirement for forensic expert analysis for the purposes of assessment of coverage under such policies. This trend is likely to continue in view of the growing cyber-risks. However, as cybercovers are comparatively recent in this jurisdiction, there is yet to be any litigation involving cyberpolicies.

Recently, the Indian insurance industry has seen a wave of new insurance products, partly due to regulatory and/or statutory changes and partly due to new risks emerging through innovations in other industries. While the industry has been typically slow to adapt and embrace new trends in terms of product offerings, new products have been filed in terms of:

• long-term insurance covers;
• health insurance covers for mental illness;
• standard life insurance products;
• standard COVID-19 health insurance products;
• telematics-based riders;
• specific endorsements for data protection and impersonation frauds (which even cover the resultant fund transfers) in both cyber- and crime insurance; and
• a new range of fitness and wellness-focused products in the health sector.

Products

The IRDAI (Unit-Linked Insurance Products) Regulations 2019 and the IRDAI (Non-Linked Insurance Products) Regulations 2019 define revised norms vis-à-vis the design and issuance of linked and non-linked life insurance policies by life insurers in India. Further, administration of group life insurance products is now governed by the circular on Group Life Insurance Products and Other Operational Matters of 26 September 2019. For health insurance business, the IRDAI issued an exposure draft of Group Insurance Products Under Health Insurance Business and Other Operational Matters on 28 April 2022.

Product Filing Procedures        

Recently, the IRDAI introduced many changes in the procedure for product filing for all lines of insurance products, as follows.       

• General insurance products – the IRDAI, through a series of circulars issued in June, July and October 2022, extended the applicability of the “use and file” procedure for product filing to all general insurance products.
• Health insurance products – the IRDAI’s circular on Use and File Procedure for All Categories of Products Under Health Insurance Business – Reg of 1 June 2022 provides that all categories of health insurance products and add-ons or riders offered (introduced or modified/revised) by general and health insurers are now permitted to be launched through the “use and file” procedure for product filing.
• Life insurance products – the IRDAI’s circular on Filing of Products/Riders for Life Insurance Business of 4 October 2022 consolidates and updates all the earlier circulars/guidelines pertaining to filing of products/riders for life insurance business, including the circular on Use and File Procedure for Life Insurance Products and Riders of 10 June 2022. It specifies that the “use and file” procedure for product filing is applicable to certain life insurance products/riders – for example, individual and group non-linked term products, group non-linked savings products, and unit-linked insurance products offered with existing approved funds.

Additional Market Developments

Recent years have been significant for the insurance sector, as they have seen the issuance of several regulations and guidelines issued by the IRDAI, including the following.

• The IRDAI has notified the IRDAI (Payment of Commission) Regulations of 26 March 2023, which repeals the IRDAI (Payment of Commission or Remuneration or Reward to Insurance Agents and Insurance intermediaries) Regulations 2016. As a result, the earlier limits on the maximum commissions payable to insurance agents or intermediaries has been removed, and the total amount of commissions is only subject to the applicable overall expense limits of the insurer.
• The IRDAI has notified the IRDAI (Expenses of Management of Insurers transacting General or Health Insurance business) Regulations 2023 and the IRDAI (Expenses of Management of Insurers Transacting Life Insurance business) Regulations 2023 of 28 March 2023. These regulations repealed the respective erstwhile norms of 2016 in relation to an insurer’s expenses.
• The IRDAI has notified the IRDAI (Registration of Indian Insurance Companies) Regulations of 5 December 2022 and the master circular on Registration of Indian Insurance Companies 2023 of 24 April 2023, which repealed the IRDAI (Registration of Indian Insurance Companies) Regulations 2000, the IRDAI (Transfer of Equity Shares of Insurance Companies) Regulations 2015, and the IRDAI (Investments by Private Equity Funds in India Insurance Companies) Guidelines 2017 of 5 December 2017. This guidance sets out various norms for Indian insurers in relation to investment structures, lock-in periods, and transfer of shares.
• The IRDAI issued Guidelines on Remuneration of Directors and Key Managerial Persons of Insurers on 30 June 2023, which brings the remuneration of an insurance company’s key managerial persons – in addition to that of its directors – within the IRDAI’s ambit.
• The IRDAI issued a circular on Revision of Customer Information Sheets on 30 October 2023, which revises the existing format of the customer information sheet provided to policyholders.
• The IRDAI issued a circular on Amendment to TCI Guidelines 2023 on 9 October 2023 to amend the IRDAI (Trade Credit Insurance) Guidelines 2021 of 8 September 2021.
• The IRDAI issued the IRDAI (Bima Vahak) Guidelines 2023 (“the Guidelines”) on 9 October 2023, in furtherance of its exposure draft of Bima Vahaks (BV) Guidelines of 1 June 2023 (the “Exposure Draft”). In terms of applicability, the Guidelines shall come into force from the launch of the Bima Vistaar product (a comprehensive insurance product proposed to be issued in due course).
• The IRDAI issued a circular on Amendment to Master Guidelines on Anti-Money Laundering/Counter Financing of Terrorism (AML/CFT) 2022 on 10 October 2023 to amend various provisions of the IRDAI’s Master Guidelines on Anti-Money Laundering/Counter Financing of Terrorism (AML/CFT) 2022 of 1 August 2022.
• The IRDAI has also issued several exposure drafts, including:
1. the IRDAI (Expenses of Management, Including Commission, of Insurers) Regulations 2023;
2. the IRDAI (Insurance Advertisement and Disclosure) (Amendment) Regulations 2023; and
3. the IRDAI (Health Insurance) (Amendment) Regulations 2022.

While the above-mentioned exposure drafts are at the deliberation stage and stakeholder comments have been invited, it is anticipated that new regulations and guidelines will be issued on these and other matters in 2024.

As regards claims, while the focus used to be on more traditional lines of insurance (such as catastrophe, life, health, and motor insurance), the Indian insurance market has evolved during the past decade or so and liability products such as professional indemnity (PI) insurance, D&O insurance, cyberpolicies, and employment practices liability insurance have come to the forefront. There is a familiarity with and demand for these products and, consequently, significant claims activity. Among liability products, the past five years show there has been a steady upward trend in claims made under PI policies and this remains the busiest claims area, followed closely by D&O insurance.

As well as an upsurge in the frequency of claims, there has also been a sharp increase in the quantum being claimed by the insured, which means that claims severity is also on the rise. Additionally, a growing number of cyber-insurance covers are being issued, with claims being made under them. This has led to an increased requirement for forensic expert analysis for the purposes of assessment of coverage under such policies.